Bank Stocks' 2025 Rally: What's Priced In for 2026?

The bank stocks' 2025 rally wasn't just a good year-it was a historic one. The sector delivered on every front, setting a near-perfect print that has now been fully priced in. Profits hit record highs, trading fees soared, and stock prices followed suit, creating a formidable expectation gap for the year ahead.

The financial results were stellar. JPMorgan Chase and Bank of America both reported record annual net interest income, with Bank of America's fourth-quarter figure hitting a new high of $15.9 billion. Across the board, analysts expect net income across these four firms to reach a record high. This profitability was turbocharged by a surge in trading fees, with the exception of Wells Fargo, all major banks expected to post record highs in trading fees for the year. The catalyst for this earnings power was a perfect storm of economic resilience and regulatory tailwinds.

The market's verdict was even more decisive. The KBW Nasdaq Bank Index, a key barometer for the sector, climbed 29% in 2025, outperforming the broader S&P 500 by a full 13 percentage points. This wasn't a fleeting pop; it was a sustained rally that pushed major bank stocks to new all-time highs. JPMorgan, Bank of America, and Wells Fargo all traded at record levels, with Citigroup even surpassing its book value for the first time in years.

The setup was clear: a favorable macro backdrop and a regulatory shift in late 2025 that moved to ease capital requirements for megabanks, freeing up capital for lending and dividends.

The bottom line is that the 2025 story has been written in the bank. The record profits, record fees, and record valuations have all been realized. For 2026, the expectation is that this exceptional performance is now the baseline. Any stumble from that high bar will be scrutinized, while any continuation of the trend will be seen as a beat on already sky-high expectations.

The Expectation Gap: Guidance vs. the Whisper Number

The forward-looking guidance from recent earnings reveals a clear market consensus for 2026: stability, not a repeat of 2025's explosive growth. The whisper number is for a year that looks a lot like the last one-a steady, profitable grind rather than another record-breaking sprint.

Bank of America's CFO provided a bullish signal on underlying economic strength, noting that loan growth was seen across all consumer borrowing categories. This is a positive indicator for future earnings, and the bank expects mid-single-digit percentage loan growth in 2026. Analysts are optimistic about this momentum, with S&P Global Market Intelligence citing macroeconomic stability and favorable lending conditions as drivers. This sets a baseline of continued expansion.

Yet, the broader expectation is for a "not materially different" year. Analysts anticipate that fourth-quarter trends will simply repeat the third quarter, with solid loan and deposit growth and stable credit quality. This is not a call for a beat, but for a hold. The market has priced in that stability. Any deviation from this steady path-whether a slowdown in loan growth or a surprise in credit costs-will be scrutinized as a potential reset of expectations.

The counterpoint comes from cost pressures. Wells Fargo and Citigroup executives have signaled more job cuts are coming, with Wells Fargo setting aside $612 million for severance costs and Citigroup cutting about 1,000 jobs. These moves highlight that even as revenue grows, banks are under pressure to manage expenses, likely limiting the upside potential for profit growth in 2026. The guidance is for a year where efficiency gains are as important as top-line expansion.

Viewed together, the forward view paints a picture of a sector that has already achieved its 2025 peak. The expectation gap for 2026 is narrow. The market is betting that the record profits and fees of last year are sustainable, but not likely to accelerate further. For the stock to rally again, banks will need to beat this whisper number of stability with a surprise in growth or profitability.

Valuation Check: Is the Rally Already Priced In?

The 2025 rally has pushed the largest U.S. banks to lofty valuations, but the sector's story isn't over. A clear expectation gap remains between the big banks and their regional peers, where the market may still be underestimating the upside.

Regional bank stocks trade at significantly lower valuations than the largest U.S. banks, presenting an alternative with more room to run. Analysts' consensus price targets show more upside potential for these regional names, suggesting the "big six" are trading at higher valuations relative to earnings and tangible book value. For instance, regional bank stocks like SouthState and Renasant have implied 12-month upside potential of 17%, while the forward price-to-earnings ratios for these names are typically well below those of the megabanks. This valuation gap is the key fact for investors: the market has already paid up for the stability of the largest players, leaving regional banks as a cheaper, potentially more rewarding bet.

Yet, a major policy risk could force a guidance reset for all banks. Executives have voiced strong concerns about the proposed 10% cap on credit card interest rates, warning it would negatively affect credit availability. This is a direct threat to a key profit driver for the largest banks, which rely heavily on consumer lending. If enacted, this cap would likely compress net interest margins and could lead to a pullback in card issuance, pressuring earnings. The risk is that the market has not fully priced in this potential regulatory headwind, creating a vulnerability that could trigger a sector-wide reassessment.

The bottom line is that the rally is not fully priced in across the board. While the big banks have seen their valuations reset to reflect record profits, the regional bank alternative offers a cheaper entry point with higher analyst-implied upside. However, the sector's forward path is not without friction. The proposed credit card rate cap is a wildcard that could force a guidance reset if it becomes law, reminding investors that even in a stable macro environment, policy uncertainty remains a material risk.

Catalysts and Risks: The 2026 Wild Cards

The expectation of a stable 2026 for bank stocks now faces a series of wild cards. The market has priced in a repeat of last year's record profits and fees, but a handful of events could easily widen that expectation gap, forcing a guidance reset or validating the stability thesis.

The most direct threat is the proposed 10% cap on credit card interest rates. Bank executives have voiced strong concerns, warning it would negatively affect credit availability and likely compress a key profit driver. If enacted, this policy would force a sector-wide reassessment, directly contradicting the whisper number of steady growth. It represents a regulatory headwind the market may not have fully priced in, creating a clear vulnerability.

A more fundamental risk is a slowdown in economic growth. Loan growth is the bedrock of the bank business, and executives have pointed to growth in all consumer borrowing categories as a positive sign. However, that momentum is the primary engine for future earnings. If the economy cools and loan growth stalls, it would break the narrative of continued expansion. Analysts expect trends to repeat, but a deviation would be seen as a major guidance reset, pressuring stocks that have already priced in stability.

Against these risks, the alternative path is clear. Regional bank stocks trade at significantly lower valuations than the largest U.S. banks, presenting an alternative with more upside potential. Analysts' consensus price targets show more room for appreciation in these names, suggesting the market has already paid up for the stability of the megabanks. For investors, the regional bank option offers a cheaper entry point with higher implied returns, should the broader sector face headwinds.

The bottom line is that 2026 will be determined by these wild cards. The sector's forward view hinges on sustained loan growth and the absence of disruptive regulation. Any stumble in that story could force a reset, while a clean economic path would validate the market's stability bet. The expectation gap is narrow, but these catalysts and risks will decide whether it closes or opens wider.